SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT of 1934 FOR THE QUARTERLY PERIOD ENDED June 30, 2002.
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO .
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Commission file number 0-12820
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AMERICAN NATIONAL BANKSHARES INC.
---------------------------------
(Exact name of registrant as specified in its charter)
VIRGINIA 54-1284688
- -------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
628 Main Street
Danville, Virginia 24541
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(Address of principal executive offices) (Zip Code)
(434) 792-5111
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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As reported in the Corporation's Current Report on Form 8-K, dated May 15, 2002,
the Corporation terminated its relationship with Arthur Andersen, LLP
("Andersen"), its former accountant, effective May 15, 2002. In accordance with
the Securities and Exchange Commission's Order of March 18, 2002, relating to
former clients of Andersen, while the Corporation was in the process of
selecting another independent public accountant, the Corporation did not obtain
a review of the financial statements for the first quarter ending March 31,
2002, that would otherwise have been required pursuant to Rule 10-01(d) of
Regulation S-X promulgated under the Securities and Exchange Act of 1934, as
amended.
Pursuant to the Securities and Exchange Commission's Order of March 18, 2002,
the Corporation's new independent public accountant, Yount, Hyde and Barbour,
P.C., have completed the review of the financial statements for the first
quarter ending March 31, 2002, and found that no changes were necessary.
The number of shares outstanding of the issuer's common stock as of August 9,
2002 was 5,787,866.
AMERICAN NATIONAL BANKSHARES INC.
INDEX
Page No.
Index 2
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of June 30, 2002
and December 31, 2001........................................... 3
Consolidated Statements of Income for the three months
ended June 30, 2002 and 2001.................................... 4
Consolidated Statements of Income for the six months
ended June 30, 2002 and 2001.................................... 5
Consolidated Statements of Cash Flows for the six months
ended June 30, 2002 and 2001.................................... 6
Notes to Consolidated Financial Statements........................ 7 - 10
Item 2. Management's Discussion and Analysis of the Financial Condition
and Results of Operations......................................... 11 - 19
Part II. Other Information................................................... 20
SIGNATURES...................................................................... 21
2
Consolidated Balance Sheets
American National Bankshares Inc. and Subsidiary
(In Thousands)
- ---------------------------------------------------------------------------------------------------------
(Unaudited)
June 30 December 31
2002 2001
---------- -----------
ASSETS
Cash and due from banks.........................................................$ 13,992 $ 14,798
Interest-bearing deposits in other banks........................................ 386 14,351
Investment securities:
Securities available for sale (at market value)............................... 124,177 127,317
Securities held to maturity (market value of $30,147 at
June 30, 2002 and $30,154 at December 31, 2001)............................. 28,998 29,474
---------- ----------
153,175 156,791
---------- ----------
Loans, net of unearned income .................................................. 391,708 375,593
Less allowance for loan losses.................................................. (5,477) (5,334)
---------- ----------
Net loans..................................................................... 386,231 370,259
---------- ----------
Bank premises and equipment, at cost, less accumulated
depreciation of $10,246 in 2002 and $9,652 in 2001............................ 8,336 7,857
Core Deposit Intangibles........................................................ 1,609 1,834
Accrued interest receivable and other assets.................................... 7,636 6,997
---------- ----------
Total assets..................................................................$ 571,365 $ 572,887
========== ==========
LIABILITIES and SHAREHOLDERS' EQUITY
Liabilities:
Demand deposits -- non-interest bearing.......................................$ 62,780 $ 58,573
Demand deposits -- interest bearing........................................... 58,277 61,405
Money market deposits......................................................... 40,969 47,024
Savings deposits.............................................................. 70,215 65,651
Time deposits................................................................. 225,241 231,359
---------- ----------
Total deposits.............................................................. 457,482 464,012
---------- ----------
Repurchase agreements........................................................... 27,815 27,177
FHLB borrowings................................................................. 15,050 13,000
Accrued interest payable and other liabilities.................................. 2,881 3,301
---------- ----------
Total liabilities............................................................. 503,228 507,490
---------- ----------
Shareholders' equity:
Preferred stock, $5 par, 200,000 shares authorized,
none outstanding............................................................ - -
Common stock, $1 par, 10,000,000 shares authorized,
5,802,456 shares outstanding at June 30, 2002
and 5,821,956 shares outstanding at December 31, 2001....................... 5,802 5,822
Capital in excess of par value................................................ 9,564 9,588
Retained earnings............................................................. 50,834 48,678
Accumulated other comprehensive income -
net unrealized gains on securities available for sale....................... 1,937 1,309
---------- ----------
Total shareholders' equity.................................................. 68,137 65,397
---------- ----------
Total liabilities and shareholders' equity..................................$ 571,365 $ 572,887
========== ==========
The accompanying notes to consolidated financial statements are an integral part of these statements.
3
Consolidated Statements of Income
American National Bankshares Inc. and Subsidiary
(In Thousands)
(Unaudited)
- ---------------------------------------------------------------------------------------------------------
Three Months Ended
June 30
-------------------------
2002 2001
---------- ----------
Interest Income:
Interest and fees on loans....................................................$ 6,785 $ 7,714
Interest on deposits in other banks........................................... 31 68
Income on investment securities:
Federal agencies............................................................ 518 762
Mortgage-backed............................................................. 598 684
State and municipal......................................................... 476 482
Other investments........................................................... 379 481
---------- ----------
Total interest income....................................................... 8,787 10,191
---------- ----------
Interest Expense:
Interest on deposits:
Demand...................................................................... 110 117
Money market................................................................ 215 343
Savings..................................................................... 270 288
Time........................................................................ 2,194 3,326
Interest on repurchase agreements............................................. 161 284
Interest on other borrowings.................................................. 176 214
---------- ----------
Total interest expense...................................................... 3,126 4,572
---------- ----------
Net Interest Income............................................................. 5,661 5,619
Provision for Loan Losses....................................................... 236 273
---------- ----------
Net Interest Income After Provision
For Loan Losses............................................................... 5,425 5,346
---------- ----------
Non-Interest Income:
Trust and investment services................................................. 666 660
Service charges on deposit accounts........................................... 416 365
Other fees and commissions.................................................... 230 197
Mortgage banking income....................................................... 69 107
Securities gains, net......................................................... - 180
Other income.................................................................. 64 59
---------- ----------
Total non-interest income................................................... 1,445 1,568
---------- ----------
Non-Interest Expense:
Salaries...................................................................... 1,661 1,625
Pension and other employee benefits........................................... 396 366
Occupancy and equipment....................................................... 607 565
Core deposit intangible amortization ......................................... 113 113
Other......................................................................... 802 781
---------- ----------
Total non-interest expense.................................................. 3,579 3,450
---------- ----------
Income Before Income Tax Provision.............................................. 3,291 3,464
Income Tax Provision............................................................ 956 1,014
---------- ----------
Net Income......................................................................$ 2,335 $ 2,450
========== ==========
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Net Income Per Common Share:
Basic...........................................................................$ .40 $ .41
Diluted.........................................................................$ .40 $ .41
- ---------------------------------------------------------------------------------------------------------
Average Common Shares Outstanding:
Basic...........................................................................5,804,608 5,999,771
Diluted.........................................................................5,846,835 6,030,203
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The accompanying notes to consolidated financial statements are an integral part of these statements.
4
Consolidated Statements of Income
American National Bankshares Inc. and Subsidiary
(In Thousands)
(Unaudited)
- ---------------------------------------------------------------------------------------------------------
Six Months Ended
June 30
-------------------------
2002 2001
---------- ----------
Interest Income:
Interest and fees on loans....................................................$ 13,534 $ 15,424
Interest on deposits in other banks........................................... 113 189
Income on investment securities:
Federal agencies............................................................ 945 1,769
Mortgage-backed............................................................. 1,254 1,242
State and municipal......................................................... 932 962
Other investments........................................................... 810 908
---------- ----------
Total interest income....................................................... 17,588 20,494
---------- ----------
Interest Expense:
Interest on deposits:
Demand...................................................................... 229 282
Money market................................................................ 405 734
Savings..................................................................... 535 614
Time........................................................................ 4,724 6,619
Interest on repurchase agreements............................................. 310 612
Interest on other borrowings.................................................. 347 426
---------- ----------
Total interest expense...................................................... 6,550 9,287
---------- ----------
Net Interest Income............................................................. 11,038 11,207
Provision for Loan Losses....................................................... 419 535
---------- ----------
Net Interest Income After Provision
For Loan Losses............................................................... 10,619 10,672
---------- ----------
Non-Interest Income:
Trust and investment services................................................. 1,332 1,320
Service charges on deposit accounts........................................... 781 661
Other fees and commissions.................................................... 426 384
Mortgage banking income....................................................... 151 190
Securities gains, net......................................................... 19 350
Other income.................................................................. 131 106
---------- ----------
Total non-interest income................................................... 2,840 3,011
---------- ----------
Non-Interest Expense:
Salaries...................................................................... 3,214 3,255
Pension and other employee benefits........................................... 771 721
Occupancy and equipment....................................................... 1,219 1,140
Core deposit intangible amortization ......................................... 225 225
Other......................................................................... 1,648 1,567
---------- ----------
Total non-interest expense.................................................. 7,077 6,908
---------- ----------
Income Before Income Tax Provision.............................................. 6,382 6,775
Income Tax Provision............................................................ 1,848 2,007
---------- ----------
Net Income......................................................................$ 4,534 $ 4,768
========== ==========
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Net Income Per Common Share:
Basic...........................................................................$ .78 $ .79
Diluted.........................................................................$ .78 $ .79
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Average Common Shares Outstanding:
Basic...........................................................................5,812,941 6,021,854
Diluted.........................................................................5,849,018 6,044,298
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The accompanying notes to consolidated financial statements are an integral part of these statements.
5
Consolidated Statements of Cash Flows
American National Bankshares Inc. and Subsidiary
(In Thousands)
(Unaudited)
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Six Months Ended
June 30
-------------------------
2002 2001
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Cash Flows from Operating Activities:
Net income......................................................................$ 4,534 $ 4,768
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses..................................................... 419 535
Depreciation.................................................................. 594 578
Core deposit intangible amortization.......................................... 225 225
Amortization (accretion) of premiums and discounts
on investment securities.................................................... 89 17
Gain on sale of securities.................................................... (19) (350)
Gain on sale of loans......................................................... (151) (190)
Loss on sale of real estate owned............................................. 10 -
Deferred income taxes benefit................................................. (111) (243)
Increase in interest receivable............................................... (151) (203)
Increase in other assets...................................................... (642) (320)
(Decrease) increase in interest payable....................................... (259) 8
Decrease in other liabilities................................................. (161) (109)
---------- ----------
Net cash provided by operating activities................................... 4,377 4,716
---------- ----------
Cash Flows from Investing Activities:
Proceeds from maturities, calls, and sales of securities ..................... 27,990 39,976
Purchases of securities available for sale.................................... (20,000) (41,069)
Purchases of securities held to maturity...................................... (3,492) (302)
Net increase in loans......................................................... (16,404) (28,168)
Proceeds from sale of real estate owned....................................... 106 -
Purchases of real estate owned................................................ (11) -
Purchases of property and equipment........................................... (1,073) (689)
---------- ----------
Net cash used in investing activities....................................... (12,884) (30,252)
---------- ----------
Cash Flows from Financing Activities:
Net (decrease) increase in demand, money market,
and savings deposits........................................................ (412) 5,915
Net (decrease) increase in time deposits...................................... (6,118) 10,549
Net increase (decrease) in repurchase agreements.............................. 638 (4,121)
Net increase in Federal Home Loan Bank borrowings............................. 2,050 9,005
Cash dividends paid........................................................... (2,034) (1,928)
Repurchase of stock........................................................... (397) (2,844)
Proceeds from exercise of stock options....................................... 9 2
---------- ----------
Net cash (used in) provided by financing activities......................... (6,264) 16,578
---------- ----------
Net Decrease in Cash and Cash Equivalents....................................... (14,771) (8,958)
Cash and Cash Equivalents at Beginning of Period................................ 29,149 25,071
---------- ----------
Cash and Cash Equivalents at End of Period......................................$ 14,378 $ 16,113
========== ==========
Supplemental Schedule of Cash and Cash Equivalents:
Cash:
Cash and due from banks.....................................................$ 13,992 $ 15,734
Interest-bearing deposits in other banks.................................... 386 379
---------- ----------
$ 14,378 $ 16,113
========== ==========
Supplemental Disclosure of Cash Flow Information:
Interest paid.................................................................$ 6,809 $ 9,279
Income taxes paid.............................................................$ 1,839 $ 2,199
Transfer of loans to other real estate owned..................................$ 164 $ 85
The accompanying notes to consolidated financial statements are an integral part of these statements.
6
AMERICAN NATIONAL BANKSHARES INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of normal
recurring accruals) necessary to present fairly American National Bankshares'
financial position as of June 30, 2002, its cash flows for the six months then
ended, and the results of its operations for the three and six months then
ended. Operating results for the three and six month periods ended June 30, 2002
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2002.
The consolidated financial statements include the amounts and results
of operations of American National Bankshares Inc. ("the Corporation") and its
wholly owned subsidiary, American National Bank and Trust Company ("the Bank")
and the Bank's two subsidiaries, ANB Mortgage Corp. and ANB Services Corp.
CRITICAL ACCOUNTING POLICIES
A summary of the Corporation's significant accounting policies is set
forth in Note 1 to the Consolidated Financial Statements in the Corporation's
2001 Annual Report on Form 10-K. In accordance with the Security and Exchange
Commission's proposed rule 33-8098 dated May 10, 2002, the Corporation's
critical accounting policies are listed below.
GENERAL
The Company's financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America (GAAP).
The financial information contained within our statements is, to a significant
extent, financial information that is based on measures of the financial effects
of transactions and events that have already occurred. A variety of factors
could affect the ultimate value that is obtained either when earning income,
recognizing an expense, recovering an asset or relieving a liability. In
addition, GAAP itself may change from one previously acceptable method to
another method. Although the economics of our transactions would be the same,
the timing of events that would impact our transactions could change.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is an estimate of the losses that may be
sustained in our loan portfolio. The allowance is based on two basic principles
of accounting: (i) SFAS 5, Accounting for Contingencies, which requires that
losses be accrued when they are probable of occurring and estimable and (ii)
SFAS 114, Accounting by Creditors for Impairment of a Loan, which requires that
losses be accrued based on the differences between the value of collateral,
present value of future cash flows or values that are observable in the
secondary market and the loan balance.
Our allowance for loan losses has three basic components: the formula
allowance, the specific allowance and the unallocated allowance. Each of these
components is determined based upon estimates that can and do change when the
actual events occur. The formula allowance uses a historical loss view as an
indicator of future losses along with various economic factors and, as a result,
could differ from the loss incurred in the future. However, since this history
is updated with the most recent loss information, the errors that might
otherwise occur are mitigated. The specific allowance uses various techniques to
arrive at an estimate of loss for specifically identified loans. Historical loss
information, expected cash flows and fair market value of collateral are used to
estimate these losses. The unallocated allowance captures losses whose impact on
the portfolio have occurred but have yet to be recognized in either the formula
or specific allowance. The use of these values is inherently subjective and our
actual losses could be greater or less than the estimates.
7
CORE DEPOSIT INTANGIBLES
In July, 2001, the Financial Accounting Standards Board issued two
statements - Statement 141, Business Combinations, and Statement 142, Goodwill
and Other Intangible Assets, which impacted the accounting for goodwill and
other intangible assets. Statement 141 eliminated the pooling method of
accounting for business combinations and required that intangible assets that
meet certain criteria be reported separately from goodwill. Statement 142
eliminated the amortization of goodwill and other intangibles that are
determined to have an indefinite life. The Statement requires, at a minimum,
annual impairment tests for goodwill and other intangible assets that are
determined to have an indefinite life. SFAS 142 allows certain intangibles
arising from Bank and Thrift acquisitions to be amortized over their estimated
useful lives.
Upon adoption of these Statements, the Company re-evaluated its
intangible assets that arose from branch acquisitions prior to July 1, 2001. The
intangible assets arising from the premium paid for deposits acquired at the
Gretna office in 1995 and the Yanceyville office in 1996 are classified as core
deposit intangibles and continue to be amortized over their estimated lives in
accordance with Statement 72.
FORWARD LOOKING STATEMENTS
This report contains forward-looking statements with respect to the
financial condition, results of operations and business of the Corporation and
Bank. These forward-looking statements involve risks and uncertainties and are
based on the beliefs and assumptions of management of the Corporation and Bank
and on information available at the time these statements and disclosures were
prepared. Factors that may cause actual results to differ materially from those
expected include the following:
o General economic conditions may deteriorate and negatively impact the
ability of borrowers to repay loans and depositors to maintain balances.
o Changes in interest rates could reduce net interest income.
o Competitive pressures among financial institutions may increase.
o The businesses that the Corporation and Bank are engaged in may be
adversely affected by legislative or regulatory changes, including changes
in accounting standards.
o New products developed or new methods of delivering products could result
in a reduction in business and income for the Corporation and Bank.
o Adverse changes may occur in the securities market.
NEW ACCOUNTING PRONOUNCEMENTS
No accounting pronouncements that have a material effect on the Corporation
were issued during the quarter ending June 30, 2002.
COMPREHENSIVE INCOME
The following is a detail of comprehensive income for the three and six
months ended June 30, 2002 and 2001:
Three Months Ended Six Months Ended
June 30 June 30
----------------------------- -----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Net Income $ 2,335,000 $ 2,450,000 $ 4,534,000 $ 4,768,000
Unrealized holding gains arising
during period (net of tax expense) 1,356,000 79,000 628,000 910,000
------------ ------------ ------------ ------------
Total comprehensive income $ 3,691,000 $ 2,529,000 $ 5,162,000 $ 5,678,000
============ ============ ============ ============
8
SEGMENT AND RELATED INFORMATION
Reportable segments include community banking and trust and investment
services. Community banking involves making loans to and generating deposits
from individuals and businesses in the markets where the Bank has offices. All
assets and liabilities of the Bank are allocated to community banking.
Investment income from fixed income investments is a major source of income in
addition to loan interest income. Service charges from deposit accounts and
non-deposit fees such as automatic teller machine fees and insurance commissions
generate additional income for community banking.
Trust and investment services includes estate and trust planning and
administration and investment management for various entities. The trust and
investment services division of the Bank manages trusts, estates and purchases
equity, fixed income and mutual fund investments for customer accounts. The
trust and investment services division receives fees for investment and
administrative services. Fees are also received by this division for individual
retirement accounts managed for the community banking segment.
Segment information for the three and six month periods ended June 30, 2002
and 2001 is shown in the following table (in thousands). The "Other" column
includes corporate related items, results of insignificant operations and, as it
relates to segment profit (loss), income and expense not allocated to reportable
segments.
9
Three Months Ended June 30, 2002
- ---------------------------------------------------------------------------------------------------------------------
Trust and
Community Investment Intersegment
Banking Services Other Eliminations Total
--------- ---------- ------ ------------ -----
Interest income $ 8,787 $ - $ 5 $ (5) $ 8,787
Interest expense 3,126 - 5 (5) 3,126
Non-interest income - external customers 619 666 160 - 1,445
Non-interest income - internal customers - 12 - (12) -
Operating income before income taxes 2,813 457 21 - 3,291
Depreciation and amortization 403 7 - - 410
Total assets 571,323 - 42 - 571,365
Capital expenditures 263 16 - - 279
Three Months Ended June 30, 2001
- ---------------------------------------------------------------------------------------------------------------------
Trust and
Community Investment Intersegment
Banking Services Other Eliminations Total
--------- ---------- ------ ------------ -----
Interest income $ 10,191 $ - $ 8 $ (8) $ 10,191
Interest expense 4,572 - 8 (8) 4,572
Non-interest income - external customers 731 660 177 - 1,568
Non-interest income - internal customers - 13 - (13) -
Operating income before income taxes 2,891 410 163 - 3,464
Depreciation and amortization 382 17 3 - 402
Total assets 563,407 - 137 - 563,544
Capital expenditures 335 - - - 335
Six Months Ended June 30, 2002
- ---------------------------------------------------------------------------------------------------------------------
Trust and
Community Investment Intersegment
Banking Services Other Eliminations Total
--------- ---------- ------ ------------ -----
Interest income $ 17,588 $ - $ 11 $ (11) $ 17,588
Interest expense 6,550 - 11 (11) 6,550
Non-interest income - external customers 1,211 1,332 297 - 2,840
Non-interest income - internal customers - 25 - (25) -
Operating income before income taxes 5,470 903 9 - 6,382
Depreciation and amortization 803 15 1 - 819
Total assets 571,323 - 42 - 571,365
Capital expenditures 1,057 16 - - 1,073
Six Months Ended June 30, 2001
- ---------------------------------------------------------------------------------------------------------------------
Trust and
Community Investment Intersegment
Banking Services Other Eliminations Total
--------- ---------- ------ ------------ -----
Interest income $ 20,494 $ - $ 14 $ (14) $ 20,494
Interest expense 9,287 - 14 (14) 9,287
Non-interest income - external customers 1,382 1,320 309 - 3,011
Non-interest income - internal customers - 27 - (27) -
Operating income before income taxes 5,845 814 116 - 6,775
Depreciation and amortization 764 34 5 - 803
Total assets 563,407 - 137 - 563,544
Capital expenditures 673 16 - - 689
10
AMERICAN NATIONAL BANKSHARES INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The purpose of this discussion is to focus on important factors affecting
the Corporation's financial condition and results of operations. The discussion
and analysis should be read in conjunction with the Consolidated Financial
Statements, and supplemental financial data.
The second quarter is a period beginning April 1 and ending June 30 and the
first quarter is a period beginning on January 1 and ending on March 31. The
first six months are defined as the period beginning on January 1 and ending on
June 30.
RESULTS OF OPERATIONS
NET INCOME
The Corporation's net income for the first six months of 2002 was
$4,534,000, a decrease of 4.9% over the $4,768,000 earned during the same period
of 2001. On a basic and diluted per share basis, net earnings totaled $0.78 for
the first six months of 2002, which was 1.3% lower than the $0.79 earned for the
same period of 2001. While earnings declined on a year-to-year basis, the number
of shares also declined due to stock repurchases under the Corporation's
outstanding stock repurchase programs.
On an annualized basis, return on average total assets was 1.60% for the
first six months of 2002 compared to 1.74% for the same period in 2001. Return
on average common shareholders' equity was 13.74% and 14.79% for the first six
months of 2002 and 2001, respectively.
Net interest income after provision for loan losses declined $53,000,
or 0.5%, for the first six months of 2002 compared to the same period in 2001
due to a decline in the interest margin and spread which was offset partially by
a lower provision for loan losses. For the same comparative period, non-interest
income excluding securities gains increased by $160,000, led by growth in
service charges and other fee and commission income. Including non-recurring
securities gains, non-interest income decreased $171,000. Non-interest expense
increased by $169,000 for the first six months of 2002 compared to the same
period in 2001 due to increases in overall employee benefits, corporate
insurance costs and the occupancy cost associated with a new banking office
opened in Henry County in March of 2002.
The Corporation's net income for the second quarter of 2002 was $2,335,000,
a decrease of 4.7% over the $2,450,000 earned during the same period of 2001.
While earnings declined on a year-to-year basis, the number of shares also
declined due to stock repurchases under the Corporation's outstanding stock
repurchase programs. On a basic and diluted per share basis, net earnings
totaled $0.40 for the second quarter of 2002, which was 2.4% lower than the
$0.41 earned for the same period of 2001. On an annualized basis, return on
average total assets was 1.64% for the second quarter of 2002 compared to 1.77%
for the same period in 2001. Return on average common shareholders' equity was
14.16% and 15.03% for the second quarter of 2002 and 2001, respectively.
The Corporation's decline in earnings was primarily the result of
non-recurring security gains recognized in 2001 that were not recognized in 2002
and increased pressure on the interest spread. When market interest rates began
declining in January of 2001 many U.S. Government agency securities the
Corporation had purchased in previous periods at a discount were called by the
issuing agency. This produced $170,000 of income in the first quarter of 2001
and $180,000 of income in the second quarter of 2001 for a total pre-tax gain on
securities of $350,000 for the six months ended June 30, 2001. In contrast, the
rate environment during the first six months of 2002 was more constant with
$19,000 in securities gains recognized.
NET INTEREST INCOME
Net interest income on a fully taxable equivalent ("FTE") basis was
$11,521,000 for the first six month period ending June 30, 2002 compared to
$11,695,000 for the same period of 2001, a decrease of 1.5%. The interest rate
spread increased to 3.70% from 3.69%, and the net yield on earning assets
decreased to
11
4.25% from 4.47% in the first six months of 2002 compared to the same period
of 2001, respectively. The net yield on earning assets decreased due to a change
in the mix of assets and the greater asset growth in the area of adjustable-rate
commercial loans and deposits in other banks.
While the net yield on earning assets declined for the first six months
of 2002 when compared to the previous year, the interest rate spread improved
slightly. Average interest-earning assets increased 3.7%, or $19,202,000 while
average interest-bearing liabilities grew 3.1%, or $13,140,000 during the first
six months of 2002. At the same time non-earning assets declined by 7.2% and
non-interest bearing demand deposits increased 6.8%. These positive
developments, coupled with the repricing of fixed term certificates of deposits
to lower levels, produced the slightly improved interest rate spread.
Net interest income on a fully taxable equivalent ("FTE") basis was
$5,897,000 for the second quarter of 2002 compared to $5,865,000 for the same
period of 2001, an increase of 0.5%. The interest rate spread increased to 3.80%
from 3.70%, and the net yield on earning assets decreased to 4.33% from 4.46% in
the second quarter of 2002 compared to the same period of 2001, respectively.
The net yield on earning assets decreased due to a change in the mix of assets
and the greater asset growth in the area of adjustable-rate commercial loans and
deposits in other banks.
When compared to the first quarter of 2002, the interest rate spread
and net yield on earning assets in the second quarter of 2002 increased with a
positive trend noted. The interest rate spread improved from 3.61% in the first
quarter of 2002 to 3.80% during the second quarter of 2002. The net yield on
earning assets improved from 4.17% in the first quarter of 2002 to 4.33% during
the second quarter of 2002. This improvement was due to several factors
including faster growth in earning assets, a higher level of time deposits
repricing to lower market interest rates, growth in non-interest bearing demand
deposits and management's overall focus on managing the margin during the
historic rate period experienced in 2002.
During the first six months of 2002, the Federal Reserve held interest
rates at year-end 2001 levels. These historically low rates kept the prime
lending rate at 4.75% during the six months ending June 30, 2002, which was much
lower than the 9.5% to 6.5% range of the prime lending rate during the same
period of 2001. While the Corporation's balance sheet is liability-sensitive,
many liabilities remain near competitive market-driven pricing floors while
assets continue to reprice or be booked at lower asset yields.
The following tables demonstrate fluctuations in net interest income
and the related yields for the first six months of 2002 and for the second
quarter of 2002 ending June 30, 2002, compared to similar prior year periods.
12
The following is an analysis of net interest income, on a taxable equivalent basis. Nonaccrual loans are included in
average balances. Interest income on nonaccrual loans if recognized is recorded on a cash basis. (In thousands, except
rates):
Interest
Average Balance Income/Expense Yield/Rate
----------------------- --------------------- -----------------
For six months ended June 30
2002 2001 2002 2001 2002 2001
-------- -------- ------- ------- ------ ------
Loans:
Commercial $163,556 $128,972 $ 5,402 $ 5,557 6.61% 8.62%
Mortgage 183,092 177,887 6,352 7,563 6.94 8.50
Consumer 35,663 46,154 1,843 2,372 10.34 10.28
-------- -------- ------- ------- ------ ------
Total loans 382,311 353,013 13,597 15,492 7.11 8.78
-------- -------- ------- ------- ------ ------
Investment securities:
Federal agencies 39,538 54,413 945 1,769 4.78 6.50
Mortgage-backed 40,503 39,525 1,254 1,242 6.19 6.28
State and municipal 38,591 39,281 1,313 1,338 6.80 6.81
Other investments 27,664 29,531 849 952 6.14 6.45
-------- -------- ------- ------- ------ ------
Total investment securities 146,296 162,750 4,361 5,301 5.96 6.51
-------- -------- ------- ------- ------ ------
Deposits in other banks 13,725 7,367 113 189 1.65 5.13
-------- -------- ------- ------- ------ ------
Total interest-earning assets 542,332 523,130 18,071 20,982 6.66 8.02
------- ------- ------ ------
Other non-earning assets 24,446 26,328
-------- --------
Total assets $566,778 $549,458
======== ========
Interest-bearing deposits:
Demand $ 59,240 $ 56,282 229 282 .77 1.00
Money market 39,530 39,404 405 734 2.05 3.73
Savings 67,888 61,547 535 614 1.58 2.00
Time 231,334 227,104 4,724 6,619 4.08 5.83
-------- -------- ------- ------- ------ ------
Total interest-bearing deposits 397,992 384,337 5,893 8,249 2.96 4.29
Repurchase agreements 30,993 28,435 310 612 2.00 4.30
Other borrowings 13,378 16,451 347 426 5.19 5.18
-------- -------- ------- ------- ------ ------
Total interest-bearing
liabilities 442,363 429,223 6,550 9,287 2.96 4.33
------- ------- ------ ------
Demand deposits 55,201 51,704
Other liabilities 3,225 4,034
Shareholders' equity 65,989 64,497
-------- --------
Total liabilities and
shareholders' equity $566,778 $549,458
======== ========
Interest rate spread 3.70% 3.69%
====== ======
Net interest income 11,521 11,695
======= =======
Taxable equivalent adjustment 483 488
======= =======
Net yield on earning assets 4.25% 4.47%
====== ======
13
The following is an analysis of net interest income, on a taxable equivalent basis. Nonaccrual loans are included in
average balances. Interest income on nonaccrual loans if recognized is recorded on a cash basis. (In thousands, except
rates):
Interest
Average Balance Income/Expense Yield/Rate
----------------------- --------------------- -----------------
For three months ended June 30
2002 2001 2002 2001 2002 2001
-------- -------- ------- ------- ------ ------
Loans:
Commercial $169,693 $133,991 $ 2,785 $ 2,815 6.56% 8.40%
Mortgage 183,430 179,272 3,131 3,757 6.83 8.38
Consumer 34,538 44,955 902 1,176 10.45 10.46
-------- -------- ------- ------- ------ ------
Total loans 387,661 358,218 6,818 7,748 7.04 8.65
-------- -------- ------- ------- ------ ------
Investment securities:
Federal agencies 45,038 47,248 518 762 4.60 6.45
Mortgage-backed 38,724 43,818 598 684 6.18 6.24
State and municipal 39,523 39,357 663 670 6.71 6.81
Other investments 26,672 31,324 395 505 5.92 6.45
-------- -------- ------- ------- ------ ------
Total investment securities 149,957 161,747 2,174 2,621 5.80 6.48
-------- -------- ------- ------- ------ ------
Deposits in other banks 7,600 5,852 31 68 1.63 4.65
-------- -------- ------- ------- ------ ------
Total interest-earning assets 545,218 525,817 9,023 10,437 6.62 7.94
------- ------- ------ ------
Other non-earning assets 24,546 27,445
-------- --------
Total assets $569,764 $553,262
======== ========
Interest-bearing deposits:
Demand $ 58,464 $ 55,554 110 117 .75 .84
Money market 40,070 39,401 215 343 2.15 3.48
Savings 69,076 61,767 270 288 1.56 1.87
Time 229,486 229,862 2,194 3,326 3.82 5.79
-------- -------- ------- ------- ------ ------
Total interest-bearing deposits 397,096 386,584 2,789 4,074 2.81 4.22
Repurchase agreements 31,899 28,117 161 284 2.02 4.04
Other borrowings 13,755 16,627 176 214 5.12 5.15
-------- -------- ------- ------- ------ ------
Total interest-bearing
liabilities 442,750 431,328 3,126 4,572 2.82 4.24
------- ------- ------ ------
Demand deposits 57,797 52,479
Other liabilities 3,245 4,270
Shareholders' equity 65,972 65,185
-------- --------
Total liabilities and
shareholders' equity $569,764 $553,262
======== ========
Interest rate spread 3.80% 3.70%
====== ======
Net interest income 5,897 5,865
======= =======
Taxable equivalent adjustment 236 246
======= =======
Net yield on earning assets 4.33% 4.46%
====== ======
14
PROVISION AND RESERVE FOR LOAN LOSSES
The allowance for loan losses is to provide for losses inherent in the
loan portfolio. The Bank's Loan Committee has responsibility for determining the
level of the allowance for loan losses, subject to the review of the Board of
Directors. Among other factors, the Committee on a quarterly basis considers the
Corporation's historical loss experience, the size and composition of the loan
portfolio, the value and adequacy of collateral and guarantors, non-performing
credits including impaired loans, the Bank's loan "Watch" list, and national and
local economic conditions.
The provision for loan losses was $419,000 for the first six months of 2002
versus $535,000 for the same period in 2001. Net charged off loans were $276,000
for the first six months of 2002 versus $130,000 for the same period in 2001.
The ratio of net charge-offs to average outstanding loans was .14% in 2002 and
..09% in 2001. Management considers these charge-off ratios lower than those of
their peer banks, who generally consider charge-off levels of .10% to .40% to be
within reasonable norms from a historical perspective.
For the second quarter ending June 30, 2002, net charge-offs were $182,000
compared to $59,000 for the same period one year prior. One commercial loan
charge-off represented 34% of net charge-offs for the first six months of 2002
and represented 52% of net-charge-offs for the second quarter ending June 30,
2002.
The reserve for loan losses totaled $5,477,000 at June 30, 2002, an
increase of 2.7% over the $5,334,000 recorded at December 31, 2001. The ratio of
reserves to loans, less unearned discount, was 1.40% at June 30, 2002 versus
1.42% at December 31, 2001. Management believes that the allowance for loan
losses is adequate to absorb any inherent losses on existing loans in the
Corporation's loan portfolio at June 30, 2002.
NON-INTEREST INCOME
Non-interest income for the first six months of 2002 was $2,840,000, a
decrease of 5.7% from $3,011,000 reported in the same period of 2001. The
comparative decline was due to a high volume of non-recurring gains on the
pre-maturity call of investment securities booked in 2001. During the Federal
Reserve's rate declines beginning in January of 2001, a large volume of callable
government agency securities purchased at a discount were called resulting in
security gains. These calls and related gains did not reoccur during the first
six months of 2002.
Excluding non-recurring securities gains, non-interest income increased
by $160,000 during the first six months of 2002 when compared to the same period
one year prior due to increased deposit account service charges and other fee
and commission income. Service charges on deposit accounts grew 18% or $120,000
in the first six months of 2002 when compared to the same period in 2001.
Trust and investment services income of $1,332,000 during the first six
months of 2002 was up slightly compared to the same period in 2001. Because a
majority of trust account fees are calculated based on the market value of the
assets under management, the performance of the equity and bond markets
continues to affect trust financial performance. The Bank's trust department
managed accounts whose market values approximated $310,000,000 at June 30, 2002
compared to $332,000,000 at March 31, 2002 and $353,000,000 at June 30, 2001.
The growth in new trust business and increased management fees slightly offset
the continued low valuations in the financial markets, which negatively impacted
asset values under management.
Non-interest income for the second quarter of 2002 was $1,445,000, a
decrease of 7.8% from $1,568,000 reported in the same period of 2001. The
reasons for decreased non-interest income for the three months ended June 30,
2002 were similar to those for the six month period ended June 30, 2002.
Excluding non-recurring securities gains, non-interest income increased $57,000
due to increased deposit account service charges and other fee and commission
income. Service charges on deposit accounts grew 14% or $51,000 in the second
quarter of 2002 when compared to the same period in 2001.
NON-INTEREST EXPENSE
Non-interest expense for the first six months of 2002 was $7,077,000, a
2.4% increase from the $6,908,000 reported for the same period last year.
Salaries decreased 1.3% from the same period last
15
year to $3,214,000 in 2002 while pension and other employee benefits increased
6.9% to $771,000. Occupancy and equipment increased $79,000, or 6.9%, for the
first six months of 2002 from the same period in 2001. These increases were
primarily the result of the Southern Henry County office that opened in March
2002, increased depreciation expense associated with recent technology
initiatives, and increases in insurance expense which were partially offset by
lower incentive compensation expense.
Core deposit intangible amortization of $225,000 for the first six
months of 2002 and 2001 represents the amortization of the premium paid for
deposits acquired at the Gretna office in 1995 and Yanceyville office in 1996.
The efficiency ratio, a productivity measure used to determine how well
non-interest expense is managed, was 49.31% and 48.12% for the six months ended
June 30, 2002 and 2001, respectively. A lower efficiency ratio generally
indicates better expense efficiency. Leaders in expense efficiency in the
banking industry have achieved ratios in the mid-to-high 40% range while the
majority of the industry remains in the 55-65% range.
Non-interest expense for the second quarter of 2002 was $3,579,000, a
3.7% increase from $3,450,000 reported for the same period of 2001. The reasons
for increased non-interest expense for the second quarter ended June 30, 2002
were primarily the result of the Southern Henry County office that opened in
March 2002, increased depreciation expense associated with recent technology
initiatives, and an increase in salaries, pension and employee benefits, and
insurance expense.
INCOME TAX PROVISION
The income tax provision for the first six months of 2002 was
$1,848,000, a decrease of $159,000 from $2,007,000 reported a year earlier. The
effective tax rate for the first six months of 2002 was 29.0% compared to 29.6%
for the same period of 2001.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
GENERAL
Total assets declined 0.3% to $571,365,000 at June 30, 2002 when
compared to assets of $572,887,000 at December 31, 2001. While total assets have
not grown, a shift in the asset mix occurred during the first six months of
2002. Total loans increased $16,115,000 or 4.3% during the first six months of
2002. During the same period the corporation reduced investment securities by
$3,616,000 or 2.3% and reduced interest bearing deposits in other banks by
$13,965,000 or 97%. This shift in assets to higher yielding investments
contributed to the corporation's improved interest rate margin and yield on
earning assets in the second quarter of 2002.
Similar to total asset growth, total liabilities declined slightly by
0.8% to $503,228,000 at June 30, 2002 when compared to $507,490,000 at December
31, 2001. Total deposits declined $6,530,000 or 1.4% during the first six months
of 2002 and other borrowings including FHLB advances and repurchase agreements
increased $2,688,000 or 6.7% during the same period. Repurchase agreements are
used by commercial accounts to earn higher yields on short-term funds and mature
daily. While total deposits declined, a shift to lower cost deposits was seen as
growth of $4,207,000 or 7.2% was noted in non-interest bearing demand deposits
and growth of $4,564,000 or 7.0% was noted in savings accounts. The primary
decline in deposits occurred in the higher cost time deposit and money market
account categories.
ASSET QUALITY
Non-performing loans include loans on which interest is no longer
accrued, accruing loans that are contractually past due 90 days or more as to
principal and interest payments, and loans classified as troubled debt
restructurings. Loans in a non-accrual status at June 30, 2002 were $479,000
compared with $568,000 at December 31, 2001, and $410,000 on June 30, 2001.
Loans on accrual status and past due 90 days or more at June 30, 2002 were
$305,000 compared with $258,000 at December 31, 2001, and $330,000 on June 30,
2001. There were no loans classified as troubled debt restructurings on June 30,
2002, December 31, 2001 or June 30, 2001.
16
<Page>
Total non-performing loans as a percentage of net loans were 0.20% at June
30, 2002, 0.22% at December 31, 2001, and 0.20% at June 30, 2001. Total
non-performing loans are considered low by industry standards. Net charge-offs
for the first six months of 2002, annualized, as a percentage of average loans
increased to .14% in 2002 from .09% for the same period of 2001. These
charge-off ratios are low by industry standards as management considers
charge-off levels of .10% to .40% to be within reasonable norms from a
historical perspective.
Properties received due to loan foreclosures were $177,000 at June 30,
2002, $117,000 at December 31, 2001, and $115,000 at June 30, 2001.
The gross amount of interest income that would have been recorded on
non-accrual loans and restructured loans as of June 30, 2002, if all such loans
had been accruing interest at the original contractual rate, was $28,000 for the
six month period ending June 30, 2002. No interest payments were recorded as
interest income during the reporting period for all such non-performing loans.
LIQUIDITY
The Corporation's net liquid assets, which includes cash and due from
banks, unpledged government securities, unpledged other securities with
remaining maturities of less than two years, less the Bank's reserve
requirement, to net liabilities ratio was 15.0% at June 30, 2002 and 20.0% at
December 31, 2001. The planned reduction in this ratio reflects a shift from
lower yielding investments and interest-bearing deposits in other banks to
higher yielding loans. Both of these ratios are considered to reflect adequate
liquidity for the respective periods.
The Bank has a line of credit equal to 15% of assets with the Federal Home
Loan Bank of Atlanta (FHLB) that equaled approximately $85,632,000 at June 30,
2002. Should the Bank ever desire to increase their line of credit beyond the
current 15% limit, the FHLB would allow borrowings of up to 40% of total assets
once the bank meets specific eligibility requirements.
Borrowings outstanding under the FHLB line of credit were $15,050,000 at
June 30, 2002 and $13,000,000 at December 31, 2001. The Bank has three term
borrowing contracts outstanding with $3,000,000 maturing in June of 2008,
$5,000,000 maturing in August of 2008, and $5,000,000 maturing in April of 2009.
The FHLB has the ability to terminate the borrowings after each contract reaches
an early conversion option date. The additional borrowings from the FHLB of
$2,050,000 were borrowed on a daily basis.
The Bank also has federal funds lines of credit facilities established with
two other banks in the amounts of $12,000,000 and $5,000,000, as well as has
access to the Federal Reserve Bank of Richmond's discount window should a
liquidity crisis occur. The Bank has not used these facilities in the past year
and considers these as backup sources of funds.
Management also takes into account any liquidity needs generated by
off-balance sheet transactions such as commitments to extend credit, commitments
to purchase securities and standby letters of credit.
Management monitors and plans the Corporation's liquidity position for
future periods. Liquidity is provided from cash and due from banks,
interest-bearing deposits in other banks, repayments from loans, increases in
deposits, lines of credit from two correspondent banks and two federal agency
banks and a planned structured continuous maturity of investments. Management
believes that these factors provide sufficient and timely liquidity for the
foreseeable future.
OFF-BALANCE SHEET TRANSACTIONS
The Corporation enters into certain financial transactions in the ordinary
course of performing traditional banking services that result in off-balance
sheet transactions. The off-balance sheet transactions recognized as of June 30,
2002 and December 31, 2001 were commitments to extent credit and standby letters
of credit only. The Corporation does not have any off-balance sheet subsidiaries
or special purpose entities.
Commitments to extend credit, which amount to $127,044,000 at June 30,
2002 and $121,062,000 at December 31, 2001, represent legally binding agreements
to lend to customers with fixed expiration dates or other termination clauses.
Since many of the commitments are expected to expire without being funded, the
total commitment amounts do not necessarily represent future liquidity
requirements.
There were no commitments to purchase securities when issued June 30, 2002
or at December 31, 2001.
17
Standby letters of credit are conditional commitments issued by the Bank
guaranteeing the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements. At
June 30, 2002 and December 31, 2001, the Bank had $1,538,000 and $1,000,000
respectively, in outstanding standby letters of credit.
CAPITAL RESOURCES
The following table displays the changes in shareholders' equity from
December 31, 2001, to June 30, 2002:
Equity, December 31, 2001 $65,397,000
Net earnings 4,534,000
Exercise of stock options 9,000
Repurchase of common stock (397,000)
Cash dividends paid (2,034,000)
Net change in net unrealized losses on AFS securities 628,000
------------
Equity, June 30, 2002 $68,137,000
============
During the second quarter of 2002, the Corporation declared and paid a
quarterly cash dividend of $.18 per share. The dividend totaled $1,044,000 and
represented a 44.7% payout of second quarter 2002 net income. During the first
quarter of 2002, the Corporation declared and paid a quarterly cash dividend of
$.17 per share. The dividend totaled $990,000 and represented a 45.0% payout of
first quarter 2002 net income. For the six months ending June 30, 2002, the
Corporation paid out $2,034,000 in cash dividends which represented 44.9% of net
income for the six months ended June 30, 2002.
The Corporation's Board of Directors authorized the repurchase of up to
300,000 shares of the Corporation's common stock between August 16, 2000 and
August 15, 2001, and 250,000 shares of the Corporation's common stock between
August 29,2001 and August 28, 2002. The repurchases, which may be made through
open market purchases or in privately negotiated transactions, were 6,600 shares
during the first quarter of 2002 and 13,500 shares during the second quarter of
2002 and total 314,466 shares since purchases began on August 16, 2000.
Federal regulatory risk-based capital ratio guidelines require
percentages to be applied to various assets including off-balance-sheet assets
in relation to their perceived risk. Tier I capital includes shareholders'
equity and Tier II capital includes certain components of nonpermanent preferred
stock and subordinated debt. The Corporation had no preferred stock or
subordinated debt outstanding. Banks and bank holding companies must have a Tier
I capital ratio of at least 4% and a total ratio, including Tier I and Tier II
capital, of at least 8%. As of June 30, 2002 the Corporation had a ratio of
14.42% for Tier I and a ratio of 15.65% for total capital. At December 31, 2001
these ratios were 14.32% and 15.56%, respectively.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The effective management of market risk is essential to achieving the
Corporation's objectives. Market risk reflects the risk of economic loss
resulting from adverse changes in market prices and interest rates. This risk of
loss can be reflected in diminished current market values and/or reduced
potential net interest income in future periods. The Corporation is not subject
to currency exchange risk or commodity price risk.
As a financial institution, interest rate risk and its impact on net
interest income is the primary market risk exposure. The Asset/Liability
Investment Committee ("ALCO") is primarily responsible for establishing asset
and liability strategies and for monitoring and controlling liquidity and
interest rate risk.
ALCO uses computer simulation analysis to measure the sensitivity of
earnings and market value of equity to changes in interest rates. The projected
changes in net interest income and market value of portfolio equity ("MVE") to
changes in interest rates are calculated and monitored by ALCO as indicators
18
of interest rate risk. The projected changes in net interest income and MVE
to changes in interest rates at June 30, 2002 and December 31, 2001 were within
compliance of established policy guidelines. These projected changes are based
on numerous assumptions of growth and changes in the mix of assets or
liabilities. Net interest income for the next twelve months is projected to
increase when interest rates are higher than current rates and decrease when
interest rates are lower than current rates.
19
PART II
OTHER INFORMATION
Item:
1. Legal Proceedings
The nature of the business of the Corporation's banking subsidiary
ordinarily results in a certain amount of litigation. The subsidiary of the
Corporation is involved in various legal proceedings, all of which are
considered incidental to the normal conduct of business. Management believes
that the liabilities arising from these proceedings will not have a material
adverse effect on the consolidated financial position or consolidated results of
operations of the Corporation.
2. Changes in securities
None
3. Defaults upon senior securities
None
4. Results of votes of security holders
At the Corporation's Annual Shareholders Meeting held on April 23,
2002, the following business was transacted:
(1) Election of Directors
All the nominees for election to the Board of Directors were
elected to serve until the 2005 Annual Meeting of Shareholders.
Affirmative Votes Votes Withheld
Richard G. Barkhouser 4,303,913 4,526
H. Dan Davis 4,297,575 10,864
Lester A. Hudson, Jr. 4,249,918 58,521
Charles H. Majors 4,303,987 4,452
5. Other information
None
6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K:
An 8-K was filed May 15, 2002, detailing changes in registrant's
certifying accountant. The Corporation dismissed Arthur Andersen LLP as the
Corporation's independent public accountant as recommended by the Corporation's
Audit Committee on May 15, 2002.
An 8-K was filed May 23, 2002, detailing changes in registrant's
certifying accountant. The Corporation, upon recommendation by the Audit
Committee, appointed Yount, Hyde and Barbour, P.C. of Winchester, Virginia to
serve as the corporation's independent public accountants for the fiscal year
ending December 31, 2002.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN NATIONAL BANKSHARES INC.
/s/ Charles H. Majors
---------------------------------------------
Charles H. Majors
Date - August 14, 2002 President and Chief Executive Officer
/s/ Brad E. Schwartz
---------------------------------------------
Brad E. Schwartz
Senior Vice-President and
Date - August 14, 2002 Secretary-Treasurer (Chief Financial Officer)
21